7/31/2015. TPA S and Actuaries Working Together. Mary Ann Rocco, EA, MSPA Huntington Beach, CA

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1 1 TPA S and Actuaries Working Together Mary Ann Rocco, EA, MSPA Huntington Beach, CA mar@roccoea.com 2 1

2 TPA S and Actuaries Working Together TPA Clients and your Practice Why bother with TPA clients? Less Work (unless it s a takeover ) Generally less pressure than being both TPA/Actuary Little to no sponsor or participant contact 3 TPA S and Actuaries Working Together Coordination Training Sales & Marketing Plan Documents Valuation Process Schedule SB/AFTAP Miscellaneous Stuff 4 2

3 Coordination for Third Party Actuarial Work Clearly defined roles and responsibilities of actuary and TPA Engagement agreement that identifies What type of work will be provided Clearly defined roles and responsibilities of actuary vs TPA Some actuaries do certification work only 5 Coordination for Third Party Actuarial Work Deliverables: Letting your TPA know what it will look like and how/ when you will provide them. As work is completed or with Schedule SB 6 3

4 Coordination for Third Party Actuarial Work Clearly defined fees Fees not the same as when acting as full service TPA. TPA is paying you for knowledge Hourly, Flat Fee or Combination Extra Fees beyond scope of annual valuation/sb/aftap work 7 Coordination for Third Party Actuarial Work Clearly defined fees Working with TPA s that lowball their fee structure. 8 4

5 Coordination for Third Party Actuarial Work Clearly defined expectation of Payment Most actuaries don t expect to wait for TPA to be paid. Clearly define when you are going to bill and when you expect to be paid. Tracking your billing By TPA client or Individual Plan? 9 Training the TPA Staff Basic understanding of DB plans What it means to sponsor a DB Plan. Requires more planning, contributions not discretionary Significance of 1000 hours (or whatever for accrual hours) in DB plans. Different requirements between DB vs DC (ie top heavy) 10 5

6 Training the TPA Staff Talking to the sponsor is part of what TPA does to make their profit. TPA personnel need enough DB knowledge to interact with sponsors. 11 Training the TPA Staff What a TPA should know about DB s. Minimum Required Funding What happens if money not funded. Deadline for pension funding. Sole Prop headaches Funding deadline Min funding may exceed max deduction. A terminated plan does not mean zero funding! 12 6

7 Training the TPA Staff What a TPA should know about DB s. Recommended Funding The contribution that brings assets up to benefits valued on termination basis or the AFTAP up to 90%. Maximum Deductible True Maximum or something less. Impact of overfunded plan. Same issues Traditional vs Cash Balance? 13 Training the TPA Staff What a TPA should know about DB s Why assets gains/losses affect required contribution. DB distributions basics Timing of actuarial calculation vs date of payment. Numbers are not static for the year Importance of QJSA waiver/lump sum election forms in DB Plans. 14 7

8 Training the TPA Staff What a TPA should know about DB s. Pooled Assets means no individual investing or accounts. Named Annuity investment contracts Life Insurance. Do you follow the Bob Schramm rule: You can have life insurance in the DB plan. You can have me as your actuary. You cannot have both. 15 Training the TPA Staff What a TPA should know about DB s. Understanding of 401(a)(26), especially those carve out lover TPA s. Cash Balance vs Traditional The differences and the same-ness. Cash Balance Plans ARE still DB plans. 16 8

9 Training the TPA Staff What a TPA should know about DB s. 415 Lump Sum Limits Why the Highest 3 Year Average matters Impact on the maximum assets that can be accumulated or the size of the pot. The expected life of the Plan. 17 Training the TPA Staff What a TPA should know about DB s. RMD rules more complicated in DB Plans. Understanding the concept of Annuity Payments. RMD Election Forms Challenges on timely distributions when ASD is the first quarter of the year. Additional time means additonal billing 18 9

10 Training the TPA Staff What a TPA should know about DB/DC s. Terminated employees may receive an allocation when they didn t before. The concept of bump ups for testing. You would think this is no surprise. Why a terminated DB plan may have required DC plan contributions. Excess assets and testing 19 Training the TPA Staff The TPA is responsible for setting sponsor expectations in regards to DB or DB/DC plans

11 Training the TPA Staff Appropriately eliciting client s funding goals Including goals moving forward with the understanding of amendment timing. Turnaround expectations Training TPA staff to get you the data in time to meet their client s expectations. 21 Training the TPA Staff How to train our TPA client s personnel? Face to face training Case by case, by training Summary papers on various topics 22 11

12 Sales & Marketing DB plans can lead to greater TPA profits as file only touched a few times per year Difficulties when working with a TPA that has only one or two DB plans. 23 Sales & Marketing Potential coordination of marketing efforts between TPA and Actuary Joint speaking with TPA to their DC referral sources. Selling point for advisors, can increase assets with less work that 401(k) Plans. Actuary availability to TPA s referral sources Single sheet attained age vs 1/10 th 415 lump sum limit can help TPA 24 12

13 Sales & Marketing Age 1/10th Age 1/10th Nearest Lump Sum Nearest Lump Sum EOY Limit EOY Limit 36 71, , , , , , , , , , , , , , , , Sales & Marketing Age 1/10th Age 1/10th Nearest Lump Sum Nearest Lump Sum EOY Limit EOY Limit , , , , , , , , , , , , , , , ,

14 Sales & Marketing Promote DB sales out of TPA s existing DC client base. Who is hitting their maximum DC limit and want to fund more? DC discrimination testing passes easily. If current TPA doesn t approach about DB plan someone else will. 27 Sales & Marketing What makes a good DB candidate? Level year to year profits Sponsor comfortable with mandatory contributions Sponsor ok providing ee s more than before (ie 5% Gateway) Owner not too young 28 14

15 Sales & Marketing What makes a bad DB candidate? Industry that fluctuates too much Sponsor already unhappy with employee costs. Sponsor highly fee sensitive. Worse if PBGC plan 29 Sales & Marketing DB Plan Proposals Actuary assists TPA to increase business via proposals. To charge or not charge? 30 15

16 Sales & Marketing Proposal data aka Help me Help you. Funding goals (current and future) Current Census Challenges in getting complete data in the proposal stage The impact when proposal data doesn t come close to actual data? Historical Census, when to ask? 31 Sales & Marketing New DB with existing DC plan that will be a takeover for the TPA The odds of getting that document in the proposal stage? TPA needs to understand proposal is more of a what s possible

17 Sales & Marketing New DB with existing DC plan that will be a takeover for the TPA If the existing DC Plan is a Safe Harbor it may ultimately require a second DC plan which may lead to higher plan admin and employee costs in first year. What if it s a prototype Are those LRM rules about limited allocation groups in the new PPA non-standardized documents? 33 Sales & Marketing TPA must understand and relay Higher DC costs for staff to support owner(s) DB benefit. Reduced DC funding for owner(s), unless PBGC covered. What was previously a discretionary profit sharing contribution is no longer discretionary 34 17

18 Sales & Marketing Potential Friction Points not applicable to stand alone DC Plans PBGC requirements Understanding funding requirements / accrual rules Assets can t be participant directed TPA is responsible to educate sponsors about DB plans in the sales process. 35 Plan Documents TPA s that sponsor a DB document Level of actuary s involvement in the DB document process Access portal/program and complete Transmit plan provisions, then review? Other? 36 18

19 Plan Documents TPA s that don t sponsor a DB document? Actuary should have one available Cash Balance Plans Individually drafted vs upcoming volume Plan Amendments Actuary or TPA to prepare Understanding 204(h) Notice requirements 37 Plan Documents If DB/DC aggregated testing, actuary must provide input/review new DC Plan. Challenges in training TPA s to make right choice in their DC documents

20 Plan Documents TPA s DC Document Eligibility Difficulties if eligibility/entry date between DB/DC don t match 1 st day nearest vs dual prospective entry Accelerated 401(k) eligibility Require census eligibility report? 39 Plan Documents TPA s DC Document Allocation types No Safe Harbor match in a non-pbgc Plan. No 3% SH to HCE s. Allocation Conditions No allocation Conditions work best. Downside, can no longer drop terminee s with <500 hours from testing. Upside, can leverage non-vested terminees without having to vest with an 11-g Amd

21 Plan Documents TPA s DC Document Allocation Conditions Last day requirement can interfere with DB Top Heavy. DC Document typically has language to ignore the hours requirement to provide Top Heavy. Terminated employee s with 1000 hours have no basis for an allocation. Solve with 11-g amendment 41 Plan Documents TPA s DC Document Some document providers have addressed this by having language that provides a 5% allocation to any non-key employee who is benefitting in DB plan and works 1000 hours in a plan year More on Top Heavy. Some DC documents self-adjust for Top Heavy when a DB plan is adopted while others need to be amended

22 TPA s DC Document Plan Documents No allocation requirements in the DC plan does not mean everyone has to receive an allocation. 43 Plan Documents TPA s DC Documents Coordination of Compensation and HCE definitions. NRA in DC Plan can affect DB/DC Testing 44 22

23 Plan Documents TPA s DC Documents How to get your TPA s to send a restated document. 45 Valuation Process Valuation Information is gathered by TPA and provided to actuary. How much input will the actuary provide in this part of the process? Request checklist? Why isn t Norm here? 46 23

24 Valuation Process Signed Plan Documents Can get lax when you have the unsigned documents and just need signature pages. More important than ever with new PBGC 501 rules. Signature pages don t line up All those compliance amendments where applicable. Will you run a valuation without signature pages but hold Schedule SB hostage? 47 Valuation Process Asset data Balanced Trust with dates and amounts of contributions and distributions. Dealing with TPA s that like to subtract BOY balance from EOY balance and call it unrealized gain. First year plan surprise! Comingled assets Pro-rata vs Time weighted method If no balances then ROR has no meaning 48 24

25 Valuation Process Census Data Can be a challenge to get the data you need. True whether you re working with TPA or a Sponsor. Who is responsible for vetting the data? Prior year ee s missing Current Year ee s with prior year hire dates Hours categories No SS# s (or set EE#s) for ease of import Rehire data 49 Valuation Process If Testing DB/DC what other information? Safe Harbor Status (hate those maybe plans). Match contributions. DC Amendments 50 25

26 Valuation Process What information do you relay once valuation is complete? Funding Ranges DC Allocations Valuation reports and benefit statements? Testing Reports? Terminated Participant Calculations/Forms 51 Valuation Process What information do you relay once valuation is complete? Balance Elections. Amendments for upcoming year. PBGC Premium Forms Can PBGC AFN be prepared before ctb funded? 52 26

27 Schedule SB/AFTAP Contribution Confirmation aka Second Hand News Can be more difficult than working directly with Sponsor. You ve signed the Schedule SB, now what? PDF format Xml files Attachments 53 Schedule SB/AFTAP TPA s and AFTAP s Deadline Tracking Oh Nooooooo!!!! How do you know was it provided to Sponsor timely? Explaining 436 Problems is a problem 54 27

28 Miscellaneous Stuff PBGC Premiums. Actuary s role in the PBGC process. Actuary as Filing Coordinator The pain of getting signed PBGC forms before submitting the filing. 55 Miscellaneous Stuff Plan Terminations Standard Terminations Actuary or TPA s doing submission. EA-S only New 501 Requirements Non-PBGC Plan terminations 56 28

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